Federated Department Stores Inc. made terms to buy for $10.4 billion in cash and stock. According to the unnamed source, the Washington Post announced the purchase price as $35.50 and valued the total offer at $10.4 billion.

The unified Federated and May are expected to be led by Cincinnati-based Federated’s chairman and chief executive, Terry Lundgren.

May’s share price lost 20% since Kahn’s departure.

The vital problem that remained is the use of May stores. There are many underperforming stores that Lundgren expects to get rid of, and there are plenty of those who are eager to buy them on the cheap.

"The combined company is going to need three retail concepts," said the consultant Dan Hess, chief executive of Merchant Forecast. "Right now they have just better and best, but they will need a more moderate division."

May closed Friday at $35.35, up $1.50. Federated was down 22 cents at $56.79.